Greek Leaders Struggle With Spending Reductions

Greek Prime Minister Antonis Samaras
The standoff leaves Greek Prime Minister Antonis Samaras heading to meetings in Rome today with his Italian, Spanish and Irish counterparts without solid domestic political backing on the package he has said is necessary to restore Greece’s credibility and keep the country in the euro. Photographer: Alessia Pierdomenico/Bloomberg

Greek Prime Minister Antonis Samaras struggled to clinch agreement with his coalition partners on an 11.5 billion-euro ($14.9 billion) budget-cut package that’s key to receiving international aid funds.

Samaras was handed the third refusal in less than two weeks yesterday from Democratic Left leader Fotis Kouvelis and Pasok leader Evangelos Venizelos, the junior partners in the coalition who met to discuss proposed cuts to wages, pensions and benefits. Finance Minister Yannis Stournaras and the “troika” of inspectors from the European Commission, the European Central Bank and the International Monetary Fund have been locked in talks for two weeks on carving out savings.

“The troika must stop attacking Greek society,” said Kouvelis after conferring with Venizelos. “The troika must understand there are limits.”

The troika, representing the international lenders in Greece’s bailout package, have already said some of the reductions don’t go far enough, forcing all parties back to the negotiating table repeatedly over the past two weeks.

The standoff leaves Samaras heading to meetings in Rome today with his Italian, Spanish and Irish counterparts without solid domestic political backing on the package he has said is necessary to restore Greece’s credibility and keep the country in the euro. Euro area finance ministers are expected to rule on the budget measures on Oct. 8.

Agreement Sought

A Finance Ministry official said 9.5 billion euros of the package had been agreed, with 6.5 billion of those related to cuts in pensions, wages and benefits. An increase in the retirement age to 67 from 65 will bring in 1 billion euros.

Some progress was made in five hours of talks last night, said the official, who asked not to be identified by name. He said an agreement may be reached soon, as new proposals to make up for the shortfall were brought to the table.

The government is seeking to agree with the troika on most of the spending cuts by Sept. 23. The mission is due to leave Athens at the end of the week if agreement is not secured by then and will only return in early October, said the official. A lower-level technical team will remain in Athens.

Kouvelis, one of the junior partners in the coalition, said however there was no final agreement on any measures. A new meeting of the coalition party leaders will be held next week, he said.

The Athens stock exchange erased gains of as much as 3.8 percent after Kouvelis’s statements, with the benchmark general index closing with gains of 1.4 percent to 763.69.

International Lenders

With the New Democracy party holding 128 of the Greek Parliament’s 300 seats, Samaras relies on Pasok’s 33 seats and the Democratic Left’s 17 to secure parliamentary approval of any pledge made to international lenders.

Samaras is facing opposition from Venizelos and Kouvelis on across-the-board cuts to pensions and wages, demands to fire civil servants and changes to labor laws as popular opposition rises in the fifth year of recession with almost a quarter of the workforce unemployed. All public transit workers walked off the job yesterday, affecting subway, bus and train services.

Police and firefighters rallied outside the premier’s residence during the meeting to oppose backtracking by Samaras on pledges to save their wages from cuts. Greece’s two biggest unions plan to hold a 24-hour general strike on Sept. 26. Today, tax collectors will walk off the job to protest plans to cut their salaries.

Agreement Imperative

Agreement on the package from Greek political leaders and the troika is imperative to allow the release of a 31 billion euro payment that is designed primarily to recapitalize the nation’s banks in a bid to boost liquidity in a cash-starved economy.

Venizelos told reporters after the meeting that the amount of savings coming from lower pensions, wages and benefits agreed with the troika was “excessive” and needed to be reduced.

He called for a “total” package to be presented to parliament including a condition that underpins the formation of the coalition government: that austerity measures be spread over four years rather than two.

International lenders to Greece held back funds pledged under two rescue packages totaling 240 billion euros in the wake of elections in May and June, which derailed reforms, halted state-asset sales and stoked concerns about the nation’s future in the 17-nation euro.

Second Package

European leaders have told Samaras the country must show it is implementing commitments made earlier this year to secure a second rescue package before there can be any discussion on easing the terms of the program. As part of that second package, private sector investors agreed to take a 53.5 percent loss in the face value of their Greek bond holdings, reducing the country’s debt by about 100 billion euros, the largest debt restructuring in history.

The country’s official lenders are considering taking losses on the bilateral loans made to Greece as part of the first aid package granted in May 2010, Financial Times Deutschland reported yesterday, citing unnamed euro-area sources. The move, which wouldn’t include the ECB or the IMF taking losses, would help establish Greece’s debt sustainability, the newspaper said.

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